Strategic Knowledge, Serendipity, and Arbitrage in Action: new venture formation and growth by region and sector

Elias G. Carayannis, The George Washington University and Gaye Acikdilli, Baskent University, Turkey

Abstract

Strategic knowledge serendipity and arbitrage phenomena in the context of technology-driven firms operating in regional and sector innovation as well as entrepreneurship ecosystems and networks are studied and profiled. The objective is to produce and discuss insights for policies supporting the formation and growth of innovation ecosystems and the practices that add competitive and comparative advantages to entrepreneurial ventures.

Proposal

This presentation proposes a study of serendipity, discovery, exploration, and exploitation in enterprise formation and growth dynamics. Entrepreneurship is widely recognized to occur because of the combined efforts of a great many participants in economic systems. The objective is to explore heterogeneity in the formation of new enterprises within countries/regions with particular focus on the roles of knowledge acquisition and transformation in the establishment and sustainability of new ventures.

The first step is to develop a research survey instrument and solicit input from multiple stakeholder groups: government, university, industry, and civil society and multiple countries/regions. The questionnaires will include definitions - such as innovation - because they are save time and assist in filtering and cross referencing answers. However, a problem may be with different interpretations by the firms, which may bias responses. We propose to collect cases that will profile the nature and impact of dynamic capabilities and real technology options, as well as collect portfolios from diverse sectoral and regional contexts. We also propose scoping interviews because they are more open-ended form of cognitive interviewing. The objective is to know how responders describe entrepreneurship and innovation in the context of their decision making. Cognitive interviewing is a field research method developed in collaboration by psychologists and survey researchers, allowing survey researchers to collect primarily verbal information on survey responses.

The results are of a qualitative nature, particularly useful for identifying the more problematic concepts. However, given the sample sizes used, it is not possible to generalize from these specific results to the full population. Nevertheless, the results are expected to provide a basis for future research into theoretical perspectives of new venture formation, suggest growth strategies to entrepreneurs, as well as offer ideas or suggestions to policymakers and economic development officials who strive to increase the entrepreneurial activity of their countries or regions. The specific purpose of this presentation at the MBAA-International conference is to share this research agenda and to solicit contributors so that this analysis will cover more nations and sectors.

Background

In the eighteenth century, Adam Smith identified land, labor, and capital as three key input factors of the economy. In the early twentieth century, Joseph Schumpeter supplemented these basics with technology and entrepreneurship as two more input factors. In the late twentieth and the early twenty-first century, scholars and practitioners identified knowledge as an important key input and output factor of economic activity.

The dynamic nature of technological change and innovations have become recognized as drivers of productivity gains and have been the basis of current economic growth and prosperity. Moreover, numerous dependencies are shaping the current condition as well as the future of the economy. It is evident that given globalization and the competitive marketplace, the principal methods of developing capabilities that provide sustained competitive advantage include knowledge and learning.

Figure 1: Innovation Ecosystem According to Carayannis (2014), “knowledge” is the content of learning and a firm gains competitive superiority either by knowing something that its competitors do not know or by having a certain type of knowledge that cannot easily be replicated. Carayannis (2014) describes “learning” as the process of gaining new knowledge, so that the firm is constantly accumulating and assimilating knowledge and this becomes the basis for creating and improving organizational routines. Strategists describe “dynamic capabilities” that enable firms to build new competences in an evolutionary cycle to maintain an edge in an ever-changing industrial environment (Carayannis, 2014). This proposed research effort is to validate the nature and dynamics of strategic knowledge, arbitrage, and serendipity as drivers of economic growth.

Early investigators have examined issues such as whether entrepreneurial opportunities are the result of serendipity or deliberate search (Koller, 1988; Peterson, 1988). Strategic managers have uncounted the traditional conflict between planning/control and serendipity in radical innovation (Burgelman, 1985). Some authors have suggested that serendipity goes to the heart of the opportunity recognition process (Merrilees et al., 1998). For example, Rosa (1998), found that many business opportunities for related diversifications arose through serendipity rather than formal searches for new markets. Reynolds (2005) examined the studies that examined the process of business creation from the perspective of serendipity. The current objective is to formulate and simulating the lifecycle of knowledge-driven and technology-driven ventures under risk and uncertainty in the form of strategic knowledge serendipity, arbitrage, and acquisition events. The timing, selection, and sequencing of key decisions pertaining to new venture formation and evolution are nonlinear manner to breadth and depth. On the other hand, the quality and density of the network structure is now the basis of the current innovation ecosystems as a dynamic innovation model.

Source: Carayannis, 2014. Carayannis, Provance, and Givens (2011) suggested that the entrepreneurship perspectives of knowledge spillover and network-based new venture formation coexist and interact. Formal knowledge acquisition and knowledge arbitrage are more effective formation mechanisms in knowledge-scarce regions, while informal knowledge acquisition and serendipity produce the highest levels of new venture formation in knowledge-rich regions. New ventures with smaller networks tend to exhibit higher likelihood of formation than those with larger networks (Carayannis, Provance, and Givens, 2011). A new model of innovation was proposed.

Figure 3: Toward a new model of innovation (Carayannis, 2012)

The objective of this study is to compare entrepreneurship and innovation perspectives across nations/regions. However, innovation can be an abstract concept and observation indicates that it shows that it can be very context and culture-dependent. Moreover, measurement of innovation entails a relatively long journey from the theoretical world of concepts and constructs (e.g. Schumpeterian notions of innovation) through to the empirical world in which they need to be operationalized and implemented into data collection instruments (e.g. innovation questionnaires, sampling techniques and resulting microdata and indicators) according to Galindo-Rueda and Van Cruysen (2016, p. 27). Expected Results

Understanding how innovation happens and how it contributes to economic growth and prosperity is a major policy concern. This is an attempt that conceivably may deliver some user relevant and internationally comparable evidence on the practice of entrepreneurship and innovation in the four sectors.

The results of this study effort will include recommendations for innovators and entrepreneurs as well as for economic development managers and policy-makers. The objective is to identify the nature and dynamics in the business and technology ecosystem that were examined. Another objective is to document strategic knowledge, serendipity, and arbitrage events as well as aim to help the ecosystem reach its maximum likelihood for sustainable and accelerated economic development.

References

Burgelman, R.A. (1985). “Managing the new venture division: Research findings and implications for strategic management”. Strategic Management Journal, 6(1), 39-54. Carayannis, E.G. (2014). “Strategic Knowledge Arbitrage and Serendipity (SKARSE™) in Action” Journal of the Knowledge Economy, June , Volume 5, Issue 2, pp 203–211. http://link.springer.com/article/10.1007/s13132-012-0142-3 Carayannis, E.G., Provance, M., & Givens, N. (2011). Knowledge arbitrage, serendipity, and acquisition formality: their effects on sustainable entrepreneurial activity in regions. IEEE Transactions on Engineering Management, 58(3), 564-577. Galindo-Rueda, F. and Van Cruysen, A. (2016). Testing Innovation Survey Concepts, Definitions and Questions: Findings from Cognitive Interviews With Business Managers, OECD Science, Technology and Innovation Technical Paper, Paris. Koller, R. H. (1988). “On the Source of Entrepreneurial Ideas”, in B. A. Kirchoff, W. Long, W. McMullan, K. H. Vesper and W. E. Wetzel (eds.), Frontiers of Entrepreneurship Research, Wellesley, MA: Babson, pp. 194-207. Merrilees, B., Miller, D., & Tiessen, J. (1998). Serendipity, leverage and the process of entrepreneurial internationalization. Small Enterprise Research, 6(2), 3-11. Peterson, R.T. (1988). “An Analysis of New Product Ideas in Small Business”, Journal of Small Business Management 26, 25-31. Reynolds, P.D. (2005). “Understanding business creation: Serendipity and scope in two decades of business creation studies. Small Business Economics, 24(4), 359-364. Rosa, P. (1998). Entrepreneurial processes of business cluster formation and growth by 'habitual' entrepreneurs. Entrepreneurship: Theory and Practice, 22(4), 43-44.